Squirrel Money P2P

[JB@Squirrel]

Hey Icyfire

Squirrel Money is primarily a banking technology play. We have built a platform that can do secured and unsecured lending, term deposits and call accounts. We put in a secondary market, an App, auto-invest etc. I think we are innovating faster than the rest of the market. The entire platform has a value under $500k on the books so we haven't even over capitalised. (We've slowed development a bit as we are currently build an epic mortgage platform for our broker business.)

We only need 3 people to run the entire platform and even that has spare capacity. If we were to simply look at marginal operating costs (excluding marketing) we are profitable already at $7m of FUM. $30m is the level that it truly washes its face including marketing and share of company overheads. Contrast that with Harmoney that has lost over $22m and has high operating expenses.

We are pursuing very different strategies.

My view is that the economics of P2P are rightfully tight. We need to build a sustainable and economically viable long-term proposition and we need to be lean.

In terms of income we earn a 2% margin and some fee income. Personal loans repay quickly with a run-off rate of close to 30% per year. So the margin income is about $700 over the life of a loan plus an upfront fee of $250 for us. So lifetime value of $950 maybe more if they borrow again and again. That's not a lot to play with in our space and we'll always find ourselves outbid in traditional media. Compare this with a finance company that earns 10% margins and has a lifetime value of $3,500. We cannot afford to spend big $$ of advertising especially with loans that run-off at 30%.

The challenge with having a $300m personal loan book is that you need to write about $90m a year just to stand still. That creates a bit of a noose - if we spend lots on marketing we have to keep spending lots on marketing to maintain momentum.

As it stands we charge borrowers an establishment fee of $250 for unsecured loans versus Harmoney at $500. Our borrower rates on average are about 4% lower which will be partially a reflection of lower risk borrowers and partly that we want to offer consistently better pricing. We think borrowers with good credit are better-off on our platform and its sustainable. We don't have lots of budget to push that message but we figure word will gradually get out and we're happy to wait, learn and build momentum.

Cheers, JB

[JB@Squirrel]

Hey Lawson,

Whilst the market is small our Reserve Fund will be a bit volatile that's why we seeded it with $200k to start with (of our own money.)

At a marginal level we still provision at 1.5 times expected losses so it should gradually increase albeit as a % it will drop.

The key thing is that if the reserve fund runs out we can socialise the loss across all investors by shaving their interest rate to replenish the fund. So if the fund has 3% actual cash in it (plus we put in 2% per year) then we have 5% reserves available over a year. If losses ran up to 10% then we would shave investor returns by 5%. In this scenario capital is still protected but returns would drop from 8%-9% to 3%-4%. Socialisation provides the maximum diversification benefit as it's sort of like an insurance policy shared across the investors.

We could debate whether 10% is realistic. My view is it is an extremely high loss rate for good quality credit borrowers. Read the investor booklet for details on all of this.

We essentially run the same reserve fund model as RateSetter and Zopa in the UK. Neither of these guys have lost 1 penny under this model even post GFC. To date (and accept its still early) we have not missed one repayment to investors, not even by a day.

Cheers, JB

[lawson]

Thanks for the info JB@Squirrel and icyfyre.

[RGR367]

It's been a dry 2 week on the lending front. My funds still sitting waiting for borrowers (on 2,3 or 5 year loans). What about the others on the other P2P platforms? Haven't you noticed a slowdown of intake on your funds?

[Saamee]

It's been a dry 2 week on the lending front. My funds still sitting waiting for borrowers (on 2,3 or 5 year loans). What about the others on the other P2P platforms? Haven't you noticed a slowdown of intake on your funds?

@Squirrel - Yes the pendulum has swung to many Investors and not enough Borrowers

@Lending Crowd last was was a massive week with many Large loans - waiting to see about this week!

[icyfire]

It appears that currently all NZ based P2P platforms are facing the same problem where there are too many investors and not enough borrowers.

[Investor]

It appears that currently all NZ based P2P platforms are facing the same problem where there are too many investors and not enough borrowers.

Yeah

[Kelvin]

And Squirrel looking to attract more investors, being part of this Wealth Innovation Tour https://gallery.mailchimp.com/764481...poster_web.pdf

Hope they invest just as much effort on the borrower side

[CageyB]

I opened a SquirrelMoney account a couple of weeks ago to test the waters (as Harmoney is a dry well right now), and nothing has gone through. I see that it seems to be having the same issue as Harmoney. What's the general strategy as far as choosing an interest rate for your bid? I've been bidding on on the lower end of the distribution. If a loan is approved that's larger than the available funds at any given interest rate, do they simply combine the funds so the investor gets the rate they bid at and the borrower pays a weighted average rate?

[Bjauck]

I opened a SquirrelMoney account a couple of weeks ago to test the waters (as Harmoney is a dry well right now), and nothing has gone through. I see that it seems to be having the same issue as Harmoney. What's the general strategy as far as choosing an interest rate for your bid? I've been bidding on on the lower end of the distribution. If a loan is approved that's larger than the available funds at any given interest rate, do they simply combine the funds so the investor gets the rate they bid at and the borrower pays a weighted average rate?

I think what happens is: if the borrower wants $10,000 and lenders have bids for $5,000 at 8.9% and $5,000 at 9.0%, then all lenders receive 9.0%